Business forum opposes interest rate hike

Cautions it will increase cost of doing business, hurt economic growth

LAHORE: The All Pakistan Business Forum (APBF) has hit out at the State Bank of Pakistan (SBP) for jacking up key interest rate by 50 basis points to 6.5% for the next two months on the excuse of dealing with emerging inflationary pressures in the economy.

In a statement, the business lobby said it was the second increase since January 2018 when the central bank raised the four-decade low rate of 5.75% to 6%.



Cumulatively, it has revised upwards the interest rate by 75 basis points in second half of the current fiscal year. The rate has now hit a three-year high of 6.5%.

APBF President Ibrahim Qureshi was of the view that the SBP had adopted a wrong path to deal with inflation as the 50-basis-point increase in the discount rate would raise the cost of doing business that would ultimately hit economic growth.



With weakness in private capital inflows continuing to persist, the central bank should cut the policy rate to spur growth, create confidence in business community and propel economy that had been held hostage by the past policy of austerity.

“Businessmen were expecting a cut in the interest rate because it could help boost private-sector growth,” he pointed out, adding lending to the private sector by commercial banks had not picked up pace in the current fiscal year.



Qureshi called for taking steps to cope with energy crisis, security challenges and political instability. He also underlined the need for supporting large-scale manufacturing and enhancing credit flow to the private sector which was sliding, stopping capital flight, improving tax collection and curbing speculation.

Ten years ago, banks were providing 67% of credit to the private sector, which fell to just 32% by 2017, he said.

According to the monetary policy statement of January, banks provided total credit of Rs225 billion to the private sector in first half of the current financial year compared to Rs328 billion in the same period of previous year, which shows banks’ declining support for the private sector.

Qureshi suggested that the government should exercise restraint while looking for loans from commercial banks and improve governance to meet the economic growth target.

Published in The Express Tribune, May 27^th, 2018.

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